It Takes a Market; B. B. Greaves

In today's global market economy, count less interrelated exchanges must take place to provide us with our morning coffee. The many persons involved in these exchanges are widely scattered and do not necessarily know one another. Most of the participants are probably unaware of how they contribute to the larger scheme of things. (Some who have contributed their expertise to the pro cess may not even be alive today.) Yet each of them, by carrying out relatively minor specialized tasks, helps to bring coffee to our breakfast table. At every step in the compli cated production process from plantation to coffee cup, entrepreneurs coordinate the ac tivities of the many participants. For this it takes a market. Mrs. Greaves is resident scholar at The Foundation for Economic Education. Private Property in a Contract Society Today we live in a contract society. Prop erty is controlled by neither king nor dictator.

For the most part, it is privately owned and has been acquired through voluntary ex change? The law defines and-theoretically at least-protects to the best of its ability the rights of private property owners. The most important right of a property owner is the right of disposal, the right to control the use of his or her property. Once property owners gain the right of disposal, they may exchange property with one another, by contract, pur chase, sale, deed, or bequest. Thus, there are exchanges and markets, and people are rela tively well supplied with food, clothing, and shelter. In a market society, the owner of consump tion goods is free to decide how they will be used. Owners may consume them, give them away,bequeath them, or even willfullydestroy them, so long as there is no interference with the equal rights of others. However, the owners of production goods are not as free as the owners of consumption goods to use them precisely as they wish. The owners may be entitled to dispose of their factors of production legally, but they are not completely free to do so economically, that is, through the market, without considering the wishes of others. In this sense, the legal owners are not the exclusive owners of their factors of production, including their own personal labor. As legal owners they may retain economic control only if they are 86 willing to devote their factors to the produc tion of goods consumers want. If they produce goods consumers don't want, they will suffer financial losses and lose their production goods-through bankruptcy, or by transfer to competitors who buy them out. The legal owners of production goods hold them only at the sufferance of consumers.

Thus in the market, there is a "twofold having" of the factors of production. On the one hand there is the owner's direct, physical, legal having. And on the other hand there is the indirect, social, economic having of those who consume the goods and services pro duced. This forces owners to share the control of their factors of production with consumers, whose natural or economic having guides production. 3 Production in the Contract Society The process of producing almost any single consumer good-even fairly simple items like coffee or a loaf of bread, a suit, a dress, a house-is so complicated that no single per son could possibly know enough to assemble all the raw materials needed, transport them from wherever they are found, manufacture the tools and machines required, and do everything else that is necessary to channel them into the service of consumers.4 Yet millions of consumer goods are offered on the market every day, many of them very com plex-automobiles, planes, textiles, comput ers, electric and electronic household appli ances, and so on. How are the factors of production-the land, labor, and capital needed for the production of anyone of these consumer goods, let alone all of them, assem bled from all over the world and channeled into their production without the dictates of an overall planner? Just how in the world, for instance, does our morning coffee really reach our breakfast tables? For that it takes a market.

In a market society with the division of labor, coffee is grown and transported to 87 breakfast tables in response to consumer wishes. Though consumers do not legally or directly own coffee plantations, coffee bean roasting plants, and oceangoing steamers, their purchases and refusals to purchase tell property owners how to use these various factors of production. Many factors must be brought into play and a complex network of market transactions developed. Some planta tion owners are induced to grow coffee, some investors to construct coffee bean roasting plants, and others to build oceangoing steam ers to carry the roasted coffee beans to market. Entrepreneurs are the arrangers, the expediters. Thus, in a market society, the legal owners of the factors of production do not have the final say. Rather it is the consumers who actually buy and drink coffee who deter mine through their natural or economic having how the factors of production will be used.

The ownership of property is in a continual state of flux, as a result of what Adam Smith called the "propensity in human nature ... to truck, barter, and exchange."5 The configu ration of property ownership worldwide is changing from day to day, minute to minute. The owners of production goods are always adjusting and readjusting production in the attempt to better serve consumers. And be cause of their sensitivity to the control of production by consumers, through their nat ural or economic having of the factors, a trend prevails in a contract society for consumers to be increasingly well provided for. Not only will they have more food, clothing, and shel ter, but also countless other wanted goods and services. And for this it takes a market. D 1. Ludwig von Mises, Socialism (Indianapolis: Liberty Fund, 1981 edition), p. 31. 2. Property acquired by force or fraud is not considered legally owned; in the eyes of the law, the thief can never acquire ownership.

3. Mises, Socialism, pp. 30-31. 4. See Leonard E. Read's "I, Pencil," The Freeman, Decem ber 1958,for an illustration of the fact that "it takes a market" to cope with the complexity of producing such a simple thing as a pencil. 5. Adam Smith, The Wealth of Nations, Edwin Cannan, ed. (New York: Modern Library, 1977), p. 130.

1997 Summer Seminars At FEE F or the 35th consecutive summer, FEE will conduct its noted seminars in the freedom philosophy and the eco nomics of a free society. Here, in the com pany of like-minded individuals, with experienced discussion leaders, and in a setting ideal for the calm exchange of ideas, is an opportunity for those who believe that the proper approach to economic problems is through the study of individual human action. These seminars continue to attract individuals from all walks of life who seek a better under standing of the principles of a free society and are interested in exploring ways of presenting the case more convincingly. Each seminar will consist of 40 hours of classroom lectures and discussions in economics and government. In addition to the regu lar FEE staff, there will be a number of distinguished visiting lec turers. The FEE charge for a seminar-tuition, supplies, room and boardis $400. A limited number of fellowships are available. We especially encourage the application of high school and college teachers or administrators, but all are invited.

Individuals, companies, and foundations interested in furthering this educational enterprise are invited to sponsor students and assist with the financing of the fellowship program. The formal announcement giving details of the seminars will be sent immediately on request. First Session: July 13-18, 1997 Second Session: August 10-15, 1997 Write: Seminars, The Foundation for Economic Education, 30 South Broadway, Irvington-on-Hudson, NY 10533; or Fax: (914) 591-8910. E-mail: freeman@westnet.com.

The Foundation for Economic Education Irvington-on-Hudson, New York 10533 Tel. (914) 591-7230 Fax (914) 591-8910 E-mail: freeman@westnet.com February 1997 European Malaise A n American who looks upon the world perceives many forms of mis ery. Many are worse than his own. Looking upon Europe he may be surprised and dismayed about the economic difficulties some countries are experiencing and the politi cal turmoil that is tearing them apart. The countries of Eastern Europe continue to suffer the pains of transformation from communist tyranny to Western-style democ racy and the private property order. They are straining to reshape their political and eco nomic structures. With their public sectors dismally unproductive and in utter disarray, the governments are incurring huge budget deficits which cause them not only to inflate and depreciate their currencies but also to bleed the fledgling private sector. If it were not for the "informal sector," that is, the underground economy in which people labor without license, permit, taxation, and political approbation, many would suffer grievously.

In Central and Western Europe the old welfare states are choking on their own "social progress." They are transferring more income and wealth than ever before, bestow ing costly favors and privileges on labor and extracting the means from entrepreneurs and capitalists. Business is forced to invest heavi ly in labor-saving machines and equipment, or seek economic survival abroad, or simply evade the social burdens by going under ground. Many employers are refugees in their own country, dismayed and frightened, and dreaming about escaping to the U.S.A. According to a Morgan Stanley analysis, the hourly labor costs in manufacturing are calculated at $31.88 in Germany, $19.34 in France, $16.48 in Italy, $13.77 in Britain, and $12.70 in Spain. These rates compare with $17.20 in the United States. Yet, no matter how high the labor costs may be, they do not cause unemployment provided they do not exceed labor productivity. The soaring rates of unemployment in Germany, France, Italy, Spain, and other European countries clearly indicate that labor costs are exces sive and taking their tolls. European unem ployment rates are more than double the U.s. rate.

The root cause of Europe's economic predicament is the oppressive burden of fringe benefit costs imposed on business dur ing the 1970s and 80s. Social Security benefits were increased significantly, which is hailed as 1/ social progress," and employer extractions were raised accordingly, which is acclaimed as "social justice." The new levies lifted mar ginallabor right out of employment; new reg ulations rigidified the labor markets and ren dered adjustments painful and difficult. They caused the national economies to stagnate, which in turn aggravated the budget deficits and the capital consumption, which in turn aggravated the stagnation, etc. Hope ever tells us that tomorrow will be better. But unless hope turns into delusion, it must be based on rational expectation, build ing on sound public opinion which after all shapes social policy. What the multitude says is so, soon will be so.

European public opinion fills us with deep pessimism. The Europeans we know proudly and defiantly cling to their notions of "social progress" no matter how many millions of workers they cast out. Guided by social com passion for the disemployed, they favor ever more "progress" which actually crushes the very people it is supposed to help. A few European economists are vaguely aware that the labor mandates of the last two decades are the prime cause of the mass unemployment. They nevertheless are quick to defend the social policies as the greatest virtue of modern democracy well worth the social costs. They wax eloquent about demo cratic virtue while millions of working peo ple walk the streets in idleness and despair. And they turn politicians vying for populari ty when they oppose reforms for being tanta mount to "political suicide." Most disturbing yet are a few old discred ited economic notions which becloud the minds of many Europeans. These notions are akin to the ideas which guided the gangs of English workingmen who, early in the 19th century, destroyed knitting machines and power looms which they blamed for unem ployment and low wages. Their intellectual descendents now condemn the computer tech nology for devouring millions of jobs. They would like to return to the old technology or at least compensate the workers for the loss of their jobs. The costs of compensation hopefully would discourage the modernization.

Other Europeans fall back on new ver sions of old protectionism. They blame cheap foreign labor for devouring domestic jobs. They never tire denouncing countries which, in their judgment, do not protect the environment, or worse yet, which exploit women and children. There is mass unem ployment in France and Germany, they are convinced, because Chinese women and chil dren earn low wages. Radical youth is quick to blame poor immigrants for the loss of jobs. It's the fault of immigrants who in more prosperous times were invited by the millions. While young people are demonstrating and rioting, the governments are enacting laws and regula tions discriminating against immigrants or even expelling them under various pretexts. Yet, the rate of native unemployment continues to rise. It now exceeds 12 percent in France and Germany and 21 percent in Spain, the most socially progressive country of Europe.

Desperate politicians and labor leaders would declare "war on unemployment." They are demanding fair and square "job sharing." To make room for the unemployed they would force employers to allow their employees to work shorter hours, take longer vacations, take more sick-leave, and seek ear lier retirement. In Germany, they already succeeded in reducing the industrial work week to 35 hours; in France they managed to advance the retirement age to 55. All over Europe the workers are told: "Slow down, don't work yourself out of a job. Leave some to the unemployed." And middle-age work ers are urged to retire: "Make room for the young!" They all are to live by a new theory according to which the demand for labor increases as labor output decreases. Weary of the economic stagnation and fearful of the declines expected for 1997, many European commentators, finally, blame their "strong currencies" for the faltering economies. The expensive Swiss franc, French franc, German mark are said to price domestic products out of the world market. Tight mon etary policies are blamed for shrinking exports and rising imports although the cen tral banks are expanding their currencies at rapid rates. Switzerland and Germany, the two leading hard-currency countries, already reduced their discount rates to 1 percent and 2.5 percent respectively. They are inflating as fast as they can without raising apprehen sions.

Many Americans who do not learn by inference and deduction have an opportunity to learn from European experience. Unfortunately, most people learn only from their own experience. Hans F. Sennholz "I believe...thata right to propertyis foundedin our naturalwantsl in the name ofwhich we are endowedto satisfythese wantsI and the right to what we acquireby those means withoutviolatingthe similarrights ofothersensiblebeings;that no one has a right to obstruct anotherexercisinghisfacultiesinnocentlyfor the reliefof sensibilitiesmade a part ofhis nature....1/ --Thomas Jefferson Private Property and Political Control T he articles in this collection have been selected from the wealth of Freeman articles published throughout the years. They point out the most crucial issue of our time l one which reaches into all other affairs of man: his economic, social, and political organization. In every age and every country, two distinct forces do battle over this issue: the lovers of freedom and the privateproperty order and the devoted advo cates of political power and the economic command system.

Contributors include: Leonard E. Read, Paul L. Poirot, Henry Hazlitt, Gary North, Hans F. Sennholz, Clarence B. Carson, Tibor R. Machan, and many more. Published by The Foundation for Economic Education, Inc. Irvington-on-Hudson, NY 10533 Tel.: (800) 452-3518 ISBN 0-910614-80-6 173 pages paperback $8.95 (Special price until March 31, 1997) (Booksellers and others who wish to order in quantity should contact Renee Oechsner.) THEFREEMAN IDEASON LIBERTY 1996 Bound Volume S turdily sewn in a single volume with navy blue cloth cover and gold foil stamping, the twelve issues from January through December 1996 -- 854 pages, fully indexed for handy reference to the latest literature of free dom. More than 100 feature articles on topics such as education, environment, government regulation and control, health care, individual rights, money, morality and ethics, private property, voluntary action, and international trade. Reviews of more than five dozen books-and all the 1996 issues of Notesfrom FEE.

AvailableFebruary15, 1997. $24.95 each Save! Special introductory price: $19.95, through April 30, 1997 NeUJ from FEE! A Moral Basis for Liberty BY ROBERT A. SIRICO Introduction by Edmund A. Opitz T he political edifice of liberty requires a firm moral foundation, but the moral terminology of contemporary political debate is often secretly at war with liberty. This represents more than linguistic confusion; it is a danger to the proper exercise of virtue in the context of freedom. While liber ty's historical roots are found in Jewish and Christian religions, the moral principles of both are overlooked in modern discussion of such basic institu tions as entrepreneurship and the welfare state. Modern discussion and eval uation of the two institutions are in need of radical correction. Advocates of capitalism and economic liberty can and should assume the moral high ground. ISBN 1-57246-059-8 • 72 pages • paperback $3.95 BACK IN PRINT!

Critique of Interventionism BY LUDWIG VON MISES New Introduction by Hans F. Sennholz T he economic principles that Ludwig von Mises expounded in these six essays during the 1920s have endured; they are as valid today as they were in the past. In this volume, Ludwig von Mises emphasizes again and again that soci ety must choose between two systems of social organization: either it can create a social order that is built on private property in the means of production, or it can establish a command system in which government owns or manages all production and distribution. There is no logical third system of a private property order subject to government regulations. The "middle of the road" leads to socialism because gov ernment intervention is not only superfluous and useless, but also harmfuL ISBN 1-57246-058-X • 136 pages • paperback $12.95 Published by The Foundation for Economic Education, Inc.

Irvington-on-Hudson, NY 10533 To order,call (800) 452-3518 orfax (914) 591-8910 THEFREEMAN IDEAS ON LIBERTY The True Takings ReformImperative by Donald J. Kochan I n recent years, a "takings" revolution has been occurring, with hundreds of reform bills introduced in state legislatures and with historic legislation pending in Congress. The most protective of these efforts aim to require payment of compensation when gov ernmental actions diminish the value of a property owner's land. One piece of Congres sionallegislation, for instance, would require the state to compensate an owner any time a federal action diminishes the value of an individual's property by more than 33 percent. These reforms, while admirable in the effort to ease the harm done to property owners by governmental regulation, should not divert us from the true imperative of the constitutional protection of property. Under the Constitution, the state is obligated to avoid adversely affecting property rights whenever possible.